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Borders filed for bankruptcy after posting losses for years and failing to adapt quickly enough to digital trends. Image via Wikipedia

What are the lessons of the Borders (BGP) bankruptcy? Why couldn’t management – and a little marketing savvy ripped out of the fashion retail playbook – turn things around?

Lesson No. 1: All Goliaths eventually become Davids.

We are currently in the chain-store era of American retailing. It’s an era defined by its vicious and inevitable churn. And the bookstore category is no exception. As recently as two decades ago, one out of two books were sold in a bookstore, according to research firm Ipsos. And there were once as many as 5,000 independent booksellers in America.

In the ‘90s when Borders and Barnes & Noble went on a growth tear and consolidated the market, the independents lost share to the big-box chains and shuttered by the thousands. And then the mass-market retailers got into the bookselling business too. Whereas Borders and Barnes & Noble were once the Goliaths – the evil big-box chains driving competition and undercutting smaller independents – the Costcos and Wal-Marts of the world began undercutting the bookstore chains. With more than 600 stores, Borders was certainly big in its category, but up against this new competition, it was facing an entirely new form of competition from an entirely different retail category. The staggering capacity for volume at these mass-market retailers, combined with the exploding growth of digital book sales at Amazon.com, proved too much for Borders. And since the product – books – are manufactured by a publishing industry that doesn’t really care where its books are sold, as long as they sold, means pricing pressure will continue to remake the competitive landscape.

Lesson No. 2: The marketplace harshly and swiftly punishes delays in adapting to the new realities of digital.

“We believe that Web-based retailing will continue to increase in popularity and market share as a distribution method for physical book, music, and movie merchandise…The shift toward digital formats represents an opportunity for us as we continue to strengthen our Web-based capabilities,” so reads the second-to-last annual report filed by Borders for the fiscal year ending in January 2009.

The lack of candor is absurd. Is it simply the deer-in-headlights paralysis that ensues when faced with massive change? Is this an example of the all-to-common failure among big companies to recognize a true crisis is at hand? Or can it just be chalked up to corporate-speak? Granted, annual reports aren’t the place for harsh pronouncements, but this ho-hum stating of the obvious without any clear strategy for addressing the “opportunity,” shows Borders just wasn’t changing fast enough.

A year later, 2010, mind you, the tone within the annual report shifted. There was candor and, finally, what sounded like a strategy: “Leverage Borders.com and the digital revolution,” reads the header within the business strategy section. “ We expect to use emerging technologies across all channels to attract customers and deliver a valued experience which we anticipate will drive sales. In addition, we will become a device-neutral, content-focused digital book provider, as we believe there is opportunity to occupy the niche of “neutral expert” for our customers, and we plan to offer a wide variety of eReaders for sale in our stores.”

Yet all the “expect to” and “we will become” and “plan to” phraseology adds up to too little too late. After all, this is the 10-K filed after a year in which sales of e-readers reached 6.6 million, an increase of 79.8%, according to Gartner, which also projects sales of e-readers to top 11 million this year.

Even as far back as 2001, Borders had perhaps already sealed its bankruptcy denouement. That’s when management decided to outsource its web-based sales to Amazon.com, instead of building up the competency internally and owning this critical distribution channel. Not until March 2007 did Borders extricate itself from this fateful deal.

If Borders had jumped into digital distribution with a sense of mission and purpose instead of outsourcing, would this have created enough of a culture shift internally to deal with the incredible external challenges facing the company? Instead of equivocating on strategy as late as 2009, important strategic steps might have been taken earlier.

Lesson No. 3: Marketing is never enough to revive a business in decline.

It was May 2007 and optimism reigned among senior-level management at Borders. Despite posting two years of losses and a whopping $151 million in red ink its previous fiscal year, a companywide reinvention plan would turn things around. Borders was going to once again remake bookselling.

The nation’s second-largest bookstore chain had hired some serious marketing talent, installing Michael Tam as its first chief marketing officer in 2004. It was a counterintuitive pick. With a resume that included stints at GNC, Nordstrom and American Eagle Outfitters, Tam was charged with bringing to bookselling the “techniques and sensibilities of the fashion world – quick inventory turns and elaborate thematic displays changed out monthly,” as I wrote in a story about the chain’s plans at the time. Borders was going to merchandise books as if it was selling clothes. For one Mother’s Day promotion, the chain’s then 567 stores were filled with in-store signage with white tulips and a palette of pastels.

The plan was to lure customers back and convince the disillusioned that the book-buying experience at a big-box chain was distinctive enough to forego the ease of just picking up the latest bestseller at Costco or Wal-Mart. Borders would offer an experience the club stores and mass-market retailers couldn’t.

The Borders in-store experience never could match that of independent bookstores, which in recent years have managed to stabilize. Was there really ever a chance or recreating the experience of independents? Can you create an authentic community in a chain of more than 600 stores?

"Bookstores are often one of the gathering places of a community. Booksellers understand that it's more than just the need for stuff that drives their business - it's also the need for community, for human exchange and connection,” writes Bill McKibben on the American Booksellers Association web site.

Over the next two fiscal years, Borders would rack up losses that would dwarf previous financial failures – a combined $344 million in fiscal 2008 and 2009. And today the once admirable chain that started as a used bookstore 40 years ago filed for bankruptcy.